Wednesday, January 11, 2012

Adam Smith Was Innocent

“Adam Smith's famous maxim that the self-interested behavior of individuals produces the common good is one widely-held fallacy. It was spectacularly debunked by the selfish behavior of the 1% who crashed the world economy in 2008.”

CommentI wonder where Adam Smith expressed this modern attributed view as a “maxim”. Among some unidentified ideologues, surely?

Adam Smith is the subject of many ideological myths, based on a misreading (more likely a non-reading) of his works. Self-interest is one such misreading – “an invisible hand” and “laissez-faire” are two others. That the fallacies are widely held is of no relevance to Adam Smith.

Smith pointedly expressed his view that for self-interest behaviour to contribute to the common good, it must be mediated by the self-interests of others. The famous example of everyday bargaining in the “butcher, brewer, and baker” example (Wealth Of Nations, Book I) is not a praise of “selfishness”, nor a rejection of “benevolence" (there was not enough to go round – he praises the virtues of benevolence in Theory of Moral Sentiments). He specifically says that you serve your self-interest, not by addressing your own wants, but by addressing the other party’s. Self-interest is best served by being other-regarding.

Wealth Of Nations also gives many examples of the self-interests of sovereigns, monopolists, protectionists, merchants and manufacturers, invading European colonialism in the Americas, and of mercantile political economy, working against the “common good”.

He gives over 70 specific examples in Books I, II and III of the malign outcomes of self-interested actors on the people they affect. The “widely-held view” of the fallacy has nothing to do with Adam Smith.

2 Comments:

Juliet Schor should also have mentioned that Smith was equally concerned about the concentration of power, like that 1% she mentioned. That 1% didn't seem to have mediated its self-interest very well with the remaining 99%, hence the financial crash of 2008.

I do not think Adam Smith mentioned the concentration of power or an alternative. Such talk may have been politically unwise for him. As it was some people (Dugald Stewart) associated with him were question by the judiciary in 1793, after Smith had died, to explore to what extent what he did say was incendiary as far as the 'lower orders' were concerned.

Smith did not have a vote, nor did he express party political views in his writings, though he may have done so in his private conversations in his "social hours".